One issue has consumed much of the OPEA lobby team’s time and effort during the current legislative session. Pension reform, the number one topic of discussion at OPEA Day at the Capitol Feb. 21, is still a hot item. Several bills that have the potential to drastically affect retirement benefits for state employees have already passed the House floor, while others are on the Senate agenda, ready for consideration.
Earlier this year, leaders in the House and Senate announced that pension reform would be a priority during the 2012 session. House Speaker Kris Steele designated Rep. Randy McDaniel to lead the effort in the House, while Senate Pro Tempore Brian Bingman appointed a Select Committee on Pensions headed by Sen. Mike Mazzei. More than 60 bills were introduced relating to the state’s six pension systems, but most of them did not survive the Legislature’s first deadline.
“OPEA has three goals in these discussions: maintaining benefits for current retirees, ensuring cost-of-living adjustments for current and future retirees and providing a decent retirement plan to help recruit and retain new employees to state service, ” said OPEA Executive Director Sterling Zearley.
Both Senate and House leaders have emphasized that any changes to the pension systems would apply only to future employees and retirees.
“We are going to honor the contract we have with current employees,” said Mazzei.
After being alerted by OPEA, Association members made a difference in the process by telling their legislators to vote “no” on HB 1003, which would have moved new employees to a defined contribution or 401(k)-type plan with a 3.5-percent employee/employer match. If employees contributed 10 percent, the state would pay 6 percent. Currently, the state pays 15.5 percent toward the retirement system, with employees contributing 3.5 percent.
“The loss of 12 percent of the employer match in HB 1003 was unacceptable,” said Zearley. “Retirement is a critical part of state employee total compensation. If the state moves to a defined contribution plan, the employer match should be much higher, with savings returned to state employees in a pay raise.”
COLA Elimination Bills Move Forward
In early March, several bills that would eliminate retiree cost-of-living adjustments (COLAs) in the foreseeable future were continuing through the process. Citing the unfunded liability of the pension systems, legislators have introduced bills to make it difficult for future Legislatures to grant COLAs to retirees.
When current assets are compared with projected costs, Oklahoma’s six pension systems have a total unfunded liability of $16 billion. Across the nation, the assets of pension systems plummeted along with the stock market during the recent recession. Most of Oklahoma’s unfunded liability is in the Teachers Retirement System. The unfunded liability of the Oklahoma Public Employees Retirement System, which serves state employees, is only $3.2 billion.
In a meeting of the Senate Select Committee on Pensions, directors of the six pension systems reported to legislators on the effect removing the COLA assumption from the systems would have on their unfunded liability. Currently, OPERS assumes a 2-percent per year COLA, even though retirees have not received an increase in three years. If the assumption were removed, the unfunded liability of OPERS would drop to $1.7 billion. The funding status of OPERS would rise from 66 percent to 78.8 percent.
HB 2132, by Speaker Kris Steele and Rep. Randy McDaniel, and SB 891, by Sen. Mike Mazzei, would require COLAs to be funded by legislative appropriations and not by a retirement system’s investments. Under these bills, retirees would have to compete with state agencies, education and other spending priorities for increases to cover the rising cost of health care and other essentials. As The Advocate went to press, HB 2132 had passed the House and was moving to the Senate, while SB 891 was moving to the House floor.
“COLAs are critical to the survival of retirees,” Zearley added. “The rising cost of food, fuel and health insurance are eroding benefit checks that are already based on low state salaries.”
The average OPERS retiree benefit is the lowest of the six public pension systems, at less than $15,000. Teacher pensions are next at $18,000. State employees whose average salary is $35,209 must work 27 years to earn a retirement benefit of $18,360.
OPEA supports a compromise that would allow COLAs to be funded through appropriations or from the retirement systems’ assets if the system is funded by at least 80 percent, according to its latest annual actuarial study. Pension experts have traditionally cited 80 percent as an acceptable measure of soundness in a system.
“OPEA believes the 80-percent rule is a reasonable compromise that allows retirees to receive occasional COLAs and still protects the system,” said Zearley.
“The COLA issue is critical to current and retired state employees,” he concluded. “If the current bills continue without amendment, state retirees will be on a fixed income with little hope of relief. OPEA members should call their legislators and ask them to support allowing COLAs when a retirement system is funded at 80 percent or more.”